Question 1

If total revenue exceeds fixed cost, a firm

Accepted Answer

A)  should produce in the short run.
B)  has covered its variable cost.
C)  is making short-run profits.
D)  may or may not produce in the short run, depending on whether total revenue covers variable cost.E) B) and C)
F) All of the above

Question 2

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 3

If in the long run a firm makes zero profit, it should exit the industry.

Accepted Answer

A) True 
 B)False

Question 4

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₄, the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost.
B)  make a profit.
C)  lose an amount less than fixed cost.
D)  make a normal profit.E) A) and D)
F) C) and D)

Question 5

Figure 10.5
  
Figure 10.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 10.5.The firm's manager suggests that the firm's goal should be to maximize average profit.If the firm does this, what is the amount of profit that it will earn?

Accepted Answer

A)  $6,600
B)  $6,750
C)  $12,150
D)  $36,000E) B) and C)
F) C) and D)

Question 6

Which of the following is not a characteristic of a monopolistically competitive market structure?

Accepted Answer

A)  There is a large number of independently acting small sellers.
B)  All sellers sell products that are differentiated.
C)  There are low barriers to entry of new firms.
D)  Each firm must react to actions of other firms.E) None of the above
F) B) and C)

Question 7

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.Identify the firm's short-run supply curve.

Accepted Answer

A)  the marginal cost curve
B)  the marginal cost curve from a and above
C)  the marginal cost curve from b and above
D)  the marginal cost curve from d and aboveE) C) and D)
F) B) and C)

Question 8

A perfectly competitive firm earns a profit when price is

Accepted Answer

A)  equal to minimum average total cost.
B)  above minimum average total cost.
C)  equal to minimum average variable cost.
D)  equal to minimum average fixed cost.E) B) and C)
F) A) and B)

Question 9

If a perfectly competitive firm's price is above its average total cost, the firm

Accepted Answer

A)  is earning a profit.
B)  should shut down.
C)  is incurring a loss.
D)  is breaking even.E) A) and C)
F) B) and C)

Question 10

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Accepted Answer

A) True 
 B)False

Question 11

A perfectly competitive firm's marginal revenue curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 12

Figure 10.1
 
-Refer to Figure 10.1.If the firm is producing 700 units,

Accepted Answer

A)  it is making a profit.
B)   it is making a loss.
C)  it should cut back its output to maximize profit.
D)  it should increase its output to maximize profit.E) A) and D)
F) A) and B)

Question 13

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Accepted Answer

A)  earning an economic profit in the long run is extremely easy.
B)  earning an economic profit in the long run is extremely difficult.
C)  it is impossible to earn an economic profit in either the short run or the long run.
D)  economic profits are only earned in the long run.E) A) and B)
F) B) and C)

Question 14

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

Accepted Answer

A)  U-shaped
B)  inverted U-shaped
C)  a horizontal line
D)  a ray from the originE) All of the above
F) B) and D)

Question 15

Figure 10.2
 
-Refer to Figure 10.2.Why is the total revenue curve a ray from the origin?

Accepted Answer

A)  because revenue increases at an increasing rate
B)  because revenue increases at a decreasing rate
C)  because the firm can sell its product at a constant price
D)  because the firm must lower its price to sell moreE) A) and D)
F) B) and D)

Question 16

Figure 10.9
 
-Refer to Figure 10.9.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.In the long-run equilibrium,

Accepted Answer

A)  there will be fewer firms in the industry and total industry output decreases.
B)  there will be more firms in the industry and total industry output increases.
C)  there will be fewer firms in the industry but total industry output increases.
D)  there will be more firms in the industry and total industry output remains constant.E) B) and C)
F) A) and D)

Question 17

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₁, the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost.
B)  lose an amount more than fixed cost.
C)  lose an amount less than fixed cost.
D)  break even.E) B) and C)
F) All of the above

Question 18

Which of the following is not true for a firm in perfect competition?

Accepted Answer

A)  Profit equals total revenue minus total cost.
B)  Price equals average revenue.
C)  Average revenue is greater than marginal revenue.
D)  Marginal revenue equals the change in total revenue from selling one more unit.E) B) and C)
F) A) and B)

Question 19

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Accepted Answer

A)  should produce in the short run.
B)  is making short-run profits.
C)  should shut down in the short run.
D)  has covered its fixed cost.E) B) and D)
F) All of the above

Question 20

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

Accepted Answer

A)  is earning a profit.
B)  should shut down.
C)  should increase output.
D)  should increase price.E) B) and D)
F) B) and C)

Exam 10: Firms in Perfectly Competitive Markets

If in the long run a firm makes zero profit, it should exit the industry.

Correct Answer
verified

If total revenue exceeds fixed cost, a firm

Correct Answer
verified

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Correct Answer
verified

Which of the following is not true for a firm in perfect competition?

Correct Answer
verified

A perfectly competitive firm's marginal revenue curve is downward sloping.

Correct Answer
verified

Correct Answer
verified

Figure 10.2 -Refer to Figure 10.2.Why is the total revenue curve a ray from the origin?

Correct Answer
verified

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₁, the firm would

Correct Answer
verified

A perfectly competitive firm earns a profit when price is

Correct Answer
verified

Figure 10.1 -Refer to Figure 10.1.If the firm is producing 700 units,

Correct Answer
verified

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

Correct Answer
verified

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Correct Answer
verified

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Correct Answer
verified

Which of the following is not a characteristic of a monopolistically competitive market structure?

Correct Answer
verified

If a perfectly competitive firm's price is above its average total cost, the firm

Correct Answer
verified

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₄, the firm would

Correct Answer
verified

Figure 10.9 -Refer to Figure 10.9.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.In the long-run equilibrium,

Correct Answer
verified

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.Identify the firm's short-run supply curve.

Correct Answer
verified

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

Correct Answer
verified

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Correct Answer
verified

Exam 10: Firms in Perfectly Competitive Markets

If in the long run a firm makes zero profit, it should exit the industry.

Correct AnswerverifiedShow Answer

If total revenue exceeds fixed cost, a firm

Correct AnswerverifiedShow Answer

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Correct AnswerverifiedShow Answer

Which of the following is not true for a firm in perfect competition?

Correct AnswerverifiedShow Answer

A perfectly competitive firm's marginal revenue curve is downward sloping.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10.2 -Refer to Figure 10.2.Why is the total revenue curve a ray from the origin?

Correct AnswerverifiedShow Answer

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₁, the firm would

Correct AnswerverifiedShow Answer

A perfectly competitive firm earns a profit when price is

Correct AnswerverifiedShow Answer

Figure 10.1 -Refer to Figure 10.1.If the firm is producing 700 units,

Correct AnswerverifiedShow Answer

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

Correct AnswerverifiedShow Answer

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Correct AnswerverifiedShow Answer

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of a monopolistically competitive market structure?

Correct AnswerverifiedShow Answer

If a perfectly competitive firm's price is above its average total cost, the firm

Correct AnswerverifiedShow Answer

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₄, the firm would

Correct AnswerverifiedShow Answer

Figure 10.9 -Refer to Figure 10.9.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.In the long-run equilibrium,

Correct AnswerverifiedShow Answer

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.Identify the firm's short-run supply curve.

Correct AnswerverifiedShow Answer

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

Correct AnswerverifiedShow Answer

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Correct AnswerverifiedShow Answer

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